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Two Kinds of Value Premiums

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  • Daehwan Kim

Abstract

We examined the return co-movement of popular value-oriented investment strategies inside and outside equity. There are two distinct groups among the strategies examined in this study. The returns of strategies within a group move together, while the returns of strategies belonging to different groups do not. In addition, the two groups have very different exposures to conventional equity risk factors. We interpret one of the two groups as being related to forward bias, and the other as being related to contrarian profits. To illustrate the usefulness of this grouping, we considered two applications. In the first application, an effective way to achieve value diversification requires selecting value strategies from both groups. In the second application, an effective value timing method requires excluding one group from the analysis.

Suggested Citation

  • Daehwan Kim, 2012. "Two Kinds of Value Premiums," International Economic Journal, Taylor & Francis Journals, vol. 26(2), pages 281-299, April.
    • Handle: RePEc:taf:intecj:v:26:y:2012:i:2:p:281-299
    DOI: 10.1080/10168737.2012.688521
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    References listed on IDEAS

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    1. Woochan Kim & Taeyoon Sung & Shang-Jin Wei, 2008. "How Does Corporate Governance Risk at Home Affect Investment Choices Abroad?," NBER Working Papers 13721, National Bureau of Economic Research, Inc.
    2. Huseyin Gulen & Yuhang Xing & Lu Zhang, 2011. "Value versus Growth: Time‐Varying Expected Stock Returns," Financial Management, Financial Management Association International, vol. 40(2), pages 381-407, June.
    3. repec:dau:papers:123456789/7743 is not listed on IDEAS
    4. Marie Briere & Bastien Drut, 2009. "The Revenge of Purchasing Power Parity on Carry Trades during Crises," Working Papers CEB 09-013.RS, ULB -- Universite Libre de Bruxelles.
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